Cut-backs on Unsecured Loans Leading to Popularity in Overdraft Borrowing

Most of us know that with unsecured loans, which have fixed instead of variable rates, the most important factor when shopping around for one is the interest rate.

Now, with the current situation, unsecured loans are becoming more rare as cut-backs have been made by lenders within this market. Most loans, including unsecured loans, are now only available to those with squeaky clean credit records and have some asset to pledge as security.

The reason for this being, lenders have little protection when granting these kinds of loans, most are now either hiking up their interest rates significantly or pulling out of the market all together. One statistic showed that availability of unsecured loans as lenders retreat, has already plummeted by 37% in just 2 years.

Those still left in the market have raised their rates to an unprecedented 12.4%, making them more undesirable for consumers. Motive given by some lenders being that they have seen an increase in defaulting customers and are reducing the risk to their institutions by no longer offering such favourable loans.

Recent figures from the British Bankers' Association(BBA) have shown that an increase in overdraft borrowing to £9.6bn owing in March, after already dropping nearly £1bn in February from £10.2bn, has been the consumers response to the lack of unsecured loans.

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